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Mortgage rates in the United States have dropped below 6 percent for the first time in more than three years, offering some relief to homebuyers. The average 30-year fixed rate declined to 5.98 percent, compared with over 6 percent a week earlier and significantly higher levels last year. The fall follows a decline in US Treasury yields. However, economists believe lower borrowing costs alone may not revive housing demand, as limited supply, high prices and the ongoing rate-lock effect continue to restrict market activity.
The average rate on a 30-year fixed mortgage in the United States declined to 5.98 percent in the past week, marking the first time since late 2022 that it has moved below the 6 percent level. Data released by Freddie Mac showed the rate eased from 6.01 percent a week earlier and stood well below the 6.76 percent recorded during the same period last year. Advertisement
The drop follows a decline in the 10-year US Treasury yield, which directly influences long-term mortgage pricing. Bond yields softened as investors moved toward safer assets amid market uncertainty. Reports indicated that steps were also taken by the US administration to encourage government-backed entities to purchase more mortgage-related bonds in an effort to reduce borrowing costs.
Despite this improvement, economists have indicated that the decline may not be enough to significantly lift housing demand. They explained that while crossing below 6 percent is psychologically important for buyers, affordability challenges remain. Home prices are still elevated in many parts of the country, and income growth has not fully matched housing cost increases over the past few years.
A major constraint continues to be limited housing supply. Inventory of existing homes remains below pre-pandemic levels. Many homeowners who secured loans at rates between 2 percent and 4 percent during 2020 and 2021 are reluctant to sell, as moving would require taking on a higher mortgage rate. This so-called rate-lock effect has reduced the number of resale listings available in the market.
New construction has also faced constraints. Builders have been dealing with higher material costs, labour shortages and financing pressures since borrowing costs surged in 2022 and 2023. While homebuilding activity has improved compared to the sharp slowdown seen when rates crossed 7 percent last year, supply additions remain gradual.
The average rate on 15-year fixed mortgages edged up slightly during the same week, reflecting uneven movement across loan categories. Analysts have suggested that while lower rates could encourage some buyers who had postponed purchases to reconsider, a sustained recovery in housing transactions will depend largely on improved supply conditions rather than short-term rate fluctuations.
The US housing market has been adjusting after an aggressive interest rate tightening cycle by the Federal Reserve in recent years to control inflation. Mortgage rates had peaked above 7 percent at one stage, leading to a sharp decline in home sales volumes. The latest movement below 6 percent is therefore notable, but structural supply challenges continue to limit momentum.
Source Reuters
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